Jeffrey Smith, Chief Executive Officer and Chief Investment Officer at Starboard Value LP.
Bloomberg | Bloomberg | Getty Images
2021 saw a lot of activity for activist funds. Notable investors included Starboard Value and JANA Partners, as well as Carl Icahn, who pushed for positive change in a variety of businesses.
All in all, activist shareholders launched 89 campaigns in the last year across a variety of industries, including consumer discretionary and information technology. This group of investors used different tactics to enhance shareholder outcomes, which included waging campaign despite having less than 5 percent of the company’s stock. This activism is called “under the threshold”.
This is a look at 2021’s performance for activist funds.
Total activism From 2020 through 2021, total activism was remarkably stable. Both years saw a total number of 89 new campaigns. It is still well below 2018 and 2019’s 102 campaigns. As Covid decreases, we expect people to go back to work and normalcy to begin to return. We also anticipate activism returning to its former levels.
The unique thing about 2021 was that, since 2014, the number and severity of UTT cases exceeded that of the 13D. There were 42 material 13D and 48 UTT campaign, compared to 48 material 13D and 41 UTT camps in 2020. This is due to two things. (i) activists are more effective when they have lower percentages of holdings; and (ii). activists using derivatives and swaps to bypass 13D requirements and still exceed 5% economic exposure.
The number of activist 13D files has been decreasing each year since 2017, with 41 filings being made in 2021. This compares to 48 filings in 2020, 64 in 2019 and 65 in 2018. 2017 was the 71st. Although there is a continued drop in 13D filings, average market capitalization of targeted companies has increased since 2015. Even though there are fewer 13D files, the total amount invested in new 13D campaign ($10.5billion) for all 41 of the last-year’s 13D fileds is approximately the same as the $10.5billion for the 48 in 2020. The $8.8 billion spent in the 61 2013D filings in 2019 is significantly higher than that of both years.
Following stagnation in 2020 and 2019, UTT campaigns saw 48 engagements again in 2021. In 2018, there were 41. The total amount of UTT filings made in 2021 rose by 27%, from $8.2 Billion in 2020 to $10.4 Billion in 2021. However, it is still below 2018’s $17.7B.
Activist investors Even though we’re still experiencing a global pandemic of sorts, there are a few notable investors returning to make the investment landscape look more like 2020. Starboard and Elliott Management were the two most active companies in 2021. This is a slight decrease from the previous year. Elliott ran seven campaigns 2021, while Starboard was active with seven in 2020. Starboard also had seven campaigns 2021 than in 2020. Starboard’s campaigns were seven in 2021 as opposed to eight in 2020. JANA Partners was also active with seven campaigns for 2021, and only one campaign in 2020. Carl Icahn was also a winner with four campaigns in 2021, compared to two for 2020. The consistency in our 2020 13D filer base is also evident. In 2021, there were 34 filers, while 2020 had 33 filers. This compares to 2019’s 49 filers. It makes sense that investors who continue to use activism as their core strategy, even if it becomes more difficult, such as activism due to Covid in 2021, will keep using it.
Industries:In 2021, the top four sectors targeted were (1) Information Technology (2) Consumer discretionary (3) Financials (4) and Health Care (5). These industries accounted for 68.54% all activism. The top four targeted industries in 2020 were: (i) Consumer Discretionary; (ii] Information Technology; (iii] Health Care; and (iv); Industrials. These four sectors accounted for 56.18% all 2020 activism. The top four industries were Industrials and Health Care, with a drop of 10 engagements (1%) to 5 engagements (6%) respectively. They were then replaced by Financials which increased its engagements from 6 (7%) in 2020 up to 13 (15%) by 2021. This is also the first time that Information Technology has surpassed Consumer Discretionary in terms of the most targeted industries since 2016. A notable other change occurred in Energy, which dropped from eight campaigns to 2020 to two in 2021.
Outcomes: The results of the 2021 UTT campaign have shown that activists are relatively at par with 2020. This is based on the 40 campaigns for 13D and UTT in 2021. The proportion of settlements, (68% in 2021 against 62% this year), full wins (3%-2021 versus 4%) and losses (30%-2021 versus 22% in last year) have remained relatively consistent.
One striking discovery is revealed by the 2020 update data. It’s more detailed than 2021 data due many 2021 engagements still pending. In 2020, 68% 13D engagements were settled while 38% UTT cases were. Furthermore, 18% of the 2020 13D cases settled have been a loss against 34% of UTT campaigns. 15% of all 13D engagements has resulted either in a win or a partial victory versus 28% in UTT situations. This is in line with the total number of 13D campaigns and UTT campaigns that took place between 2014-2020.
Ken Squire founded 13D Monitor and is its president. The institutional research company specializes in shareholder activism.